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Alexander Hitchcock, Reform, on competition that works for a diverse marketplace

13 July 2016

Despite appearances, government continues in Westminster. For welfare-to-work services providers, this means full attention on bidding for contracts to deliver the Government’s new Work and Health Programme.
These procurements are decisive: they deliver incomes for suppliers to provide services for a number of years. It is only right therefore, that commissioners deliver the Department for Work and Pensions’ desired “level playing field” for competition to ensure that all providers can compete without unnecessary obstacles.

Research published by Reform today shows that past procurements have not achieve this. It calls for the new Government to focus on removing barriers to market entry.

To do so, it is critical that commissioners get things right from the start. DWP’s commissioning strategy explains that: “Sufficiently long pre-procurement and procurement phases containing close market engagement by DWP can contribute to a level-playing field.” Early feedback from suppliers, however, indicates that government is not achieving this. A key issue is the transparency of information being shared: poor forecasting assumptions during the Work Programme, including the unwillingness to share calculations underpinning these, has eroded supplier confidence in referral volumes and forecasts. Government should therefore share referral assumptions and forecasts with bidders to help them confidently bid for contracts.

DWP should also remove administrative barriers to market entry. DWP has indicated that the Work and Health Programme will require a parent-company guarantee to insure against provider failure. Previous use, in Transforming Rehabilitation contracts, shows that these can exclude potential providers, if poorly constructed. With no evidence of parent-company guarantees being used in government, commissioners should take this opportunity to refine their approach to risk management. Parent-company guarantees should be smaller than the one-year contract value covered by Transforming Rehabilitation guarantees. Social-impact bonds or risk-sharing agreements should also be accepted as insurance if these remove barriers to market entry.

Once bids are submitted, officials should refine their assessment methods. Suppliers interviewed worried that government weighted price too heavily in assessments. This may distort markets towards bids that are cheap, not bids that are effective. When quality was assessed, the paper-based approach to procurement often, we heard, was dominated by bid writers, who rotated between a small number of providers – entrenching their market dominance. To address this, Reform supports ERSA’s call for bids to be assessed on a 70-30 quality-price split. Commissioners are also right to insist on extended dialogue during the procurement to assess the quality of bids in more detail.

As ERSA has said, improving DWP’s approach to commissioning welfare-to-work services requires evolution, not revolution. Government recognises the benefits third parties bring to delivering services. To achieve these, it should remove obstacles to vibrant competition. For a new Government this would provide a model for procurements long into the future.

Alexander Hitchcock is a Researcher at the public services think tank, Reform.

Reform’s report, The Work and Health Programme: levelling the playing field, can be found here.